Appendix
Sample term sheet (annotated)
Sample term sheet (annotated)
This is a sample warehouse facility term sheet with inline annotations. Each section shows representative language followed by practitioner commentary explaining what the provision means, what is negotiable, and what to watch for.
Use this alongside the Term Sheet Anatomy guide, which covers the concepts in depth. This document gives you the actual language you will encounter.
The sample below is based on a $75M warehouse facility for a consumer unsecured loan originator. Your term sheet will differ in specifics, but the structure and key provisions will be similar across most warehouse deals.
Transaction summary
INDICATIVE TERM SHEET
Revolving Warehouse Credit Facility
Term Description Borrower [Originator SPV], LLC, a Delaware limited liability company Originator/Servicer [Originator], Inc. Administrative Agent [Capital Provider Bank], N.A. Facility Type Revolving warehouse credit facility Initial Commitment $75,000,000 Maximum Commitment $150,000,000 (subject to accordion) Closing Date On or about [Date] Revolving Period 24 months from Closing Date Amortization Period 12 months following the Revolving Period Final Maturity 36 months from Closing Date
What this means
The transaction summary sets the basic parameters of the deal. The numbers here become the foundation for everything that follows.
Initial vs. Maximum Commitment: The $75M is what the capital provider commits on day one. The $150M accordion is an option to expand, typically subject to performance thresholds and mutual agreement. Do not plan your business around the accordion amount until you have clarity on the expansion conditions.
Revolving Period: The 24-month revolving period is when you can add new assets to the pool. After month 24, no new purchases are permitted and the facility begins amortizing. A 24-month revolving period on a 36-month facility is aggressive. Some deals have shorter revolving periods (12-18 months), which limits your effective use of the capacity.
SPV Structure: The Borrower is an SPV (special purpose vehicle), not your operating company. This is standard. The SPV provides bankruptcy remoteness, meaning if your operating company fails, the capital provider’s claim on the assets is protected.
The distinction between “Initial Commitment” and “Maximum Commitment” matters for planning. An accordion from $75M to $150M is not guaranteed capacity. It is an option to negotiate an expansion if you hit performance milestones and the capital provider wants to increase exposure.
Facility mechanics
Revolving Credit Facility: During the Revolving Period, Borrower may request Advances to fund the purchase of Eligible Receivables, subject to the Borrowing Base and Maximum Advance Amount limitations.
Borrowing Base: At any time, the Borrowing Base equals the sum of: (a) the Advance Rate multiplied by the Eligible Receivables Balance, minus (b) any required Reserve Amounts.
Maximum Advance Amount: Outstanding Advances shall not exceed the lesser of (a) the Commitment Amount and (b) the Borrowing Base.
Minimum Draw: Each Advance request shall be for a minimum amount of $1,000,000.
Prefunding Period: For a period of 30 days following the Closing Date, Borrower may request Advances up to [80]% of the anticipated Eligible Receivables to be delivered during such period. Borrower shall deliver Eligible Receivables with an aggregate unpaid principal balance equal to at least [110]% of any prefunded Advances within 30 days of such Advance.
Clean-Up Call: Borrower may terminate the Facility and prepay all outstanding Advances when the aggregate Eligible Receivables Balance falls below 10% of the Maximum Eligible Receivables Balance.
What this means
Borrowing Base Mechanics: Your available funding at any moment equals the Advance Rate times your Eligible Receivables, minus reserves. If you have $100M in eligible assets and an 80% advance rate with $2M in required reserves, your borrowing base is $78M.
Minimum Draw: The $1M minimum draw prevents operational friction from many small advances. For a $75M facility, this is standard. Some larger facilities have $5M minimums.
Prefunding Trap: Prefunding lets you draw before you have the assets in place. The catch: you pay interest on the full prefunded amount from day one. A 30-day prefunding window at 8% interest on $10M costs approximately $65,000 in interest before you have a single asset generating yield. Use prefunding sparingly.
Clean-Up Call: This provision lets you terminate early when the pool shrinks to 10% of peak size. Exercise it to avoid paying administrative costs on a small residual pool during wind-down.
Prefunding sounds attractive because it gives you capital before you have assets. But you pay interest immediately on funds that are not yet deployed. If you prefund $10M and it takes 30 days to deploy, you have paid approximately $65,000 in interest with no offsetting income.
Pricing and economics
Interest Rate: SOFR (30-day Term SOFR) plus a spread of 3.25% per annum.
SOFR Floor: 0.00%
Default Rate: The Interest Rate plus 2.00% per annum
Interest Period: Monthly, calculated on an Actual/360 basis
Interest Payment Date: The 15th day of each calendar month (or the next Business Day)
Commitment Fee (Structuring): 1.00% of the Initial Commitment, payable at Closing
Unused Fee: 0.375% per annum on the average daily unused Commitment, payable monthly in arrears
Administrative Fee: $75,000 per annum, payable quarterly in advance
Amendment Fee: $35,000 per amendment (other than administrative amendments)
Extension Fee: 0.25% of the then-current Commitment, payable upon any extension of the Maturity Date
What this means
Interest Rate Construction: SOFR + 325 bps on a consumer unsecured warehouse is in the middle of the market range (275-450 bps for this asset class). The 30-day Term SOFR is the most common benchmark; some deals use daily SOFR or 90-day SOFR.
Actual/360 Convention: Interest is calculated on actual days elapsed divided by 360. This results in slightly higher interest than Actual/365. On a $60M average balance at 8% interest, the Actual/360 convention costs approximately $80,000 more per year than Actual/365.
Fee Economics:
| Fee | Amount | Notes |
|---|---|---|
| Structuring fee | $750,000 | 1.0% of $75M, due at closing |
| Unused fee (at 70% utilization) | $84,000/year | 0.375% on $22.5M undrawn |
| Administrative fee | $75,000/year | Fixed regardless of utilization |
| Total annual fees (at 70% util) | $159,000/year | Plus interest on drawn balance |
Illustrative pricing. See pricing disclaimer.
All-In Cost Calculation:
Assume $52.5M average drawn balance (70% utilization), SOFR at 5.25%:
- Interest: $52.5M x 8.5% = $4.46M
- Unused fee: $22.5M x 0.375% = $84K
- Admin fee: $75K
- Structuring fee (amortized over 2 years): $375K
- Total annual cost: $4.99M on $52.5M = approximately 9.5% all-in
This is the number that matters for comparing term sheets, not the headline spread alone.
The unused fee creates a real cost to oversizing your facility. At 50% utilization on a $75M facility with a 0.375% unused fee, you pay $141,000/year for capacity you are not using. Size the facility to 1.2-1.5x your expected peak utilization, not “as big as they’ll give me.”
Advance rates and borrowing base
Advance Rate:
Collateral Type Advance Rate Current Eligible Receivables (0-29 DPD) 82.5% Seasoned Eligible Receivables (origination >12 months) 80.0% Eligible Receivables 30-59 DPD 50.0% Reserve Amounts:
- Spread Reserve: 1.0% of Eligible Receivables Balance
- Servicer Reserve: 0.5% of Eligible Receivables Balance
Borrowing Base Certificate: Borrower shall deliver a Borrowing Base Certificate to Administrative Agent no later than the 5th Business Day of each calendar month, certifying the Eligible Receivables Balance and Borrowing Base as of the last day of the prior month.
What this means
Tiered Advance Rates: The 82.5% headline rate applies only to current, recently originated receivables. Older assets get 80%. Delinquent assets drop to 50% (and may not be eligible at all depending on the eligibility criteria).
Reserve Carve-Outs: The 1.5% in reserves further reduces your effective advance. On a $100M portfolio at 82.5% advance minus 1.5% reserves, your actual borrowing capacity is $81M, not $82.5M.
Effective Advance Rate Example:
Your $100M portfolio composition:
- $85M current, recently originated: 82.5% = $70.1M
- $10M seasoned (>12 months): 80.0% = $8.0M
- $3M 30-59 DPD: 50.0% = $1.5M
- $2M 60+ DPD: 0% (ineligible) = $0
- Subtotal: $79.6M
- Less reserves (1.5% of $98M eligible): ($1.47M)
- Net borrowing base: $78.1M
- Effective advance on total portfolio: 78.1%
The stated 82.5% advance rate becomes 78.1% in practice. This is the number to use in your financial model.
Never model your economics using the headline advance rate. Calculate the effective advance rate by running your actual portfolio through the eligibility criteria and tiered advance rate structure. The difference between stated and effective advance is typically 3-5 percentage points.
Eligibility criteria
Eligible Receivables: A Receivable shall be an “Eligible Receivable” only if it satisfies all of the following criteria as of the applicable Determination Date:
(a) The Receivable is denominated and payable in U.S. Dollars
(b) The Obligor is a natural person residing in the United States
(c) The Obligor’s FICO Score at origination was not less than 660
(d) The Receivable was originated in accordance with the Origination Guidelines approved by Administrative Agent
(e) The Receivable has an original term of not more than 60 months
(f) The original principal balance of the Receivable is not less than $1,000 and not more than $50,000
(g) The Receivable is not more than 59 days past due
(h) The Receivable has been outstanding for not less than 30 days and not more than 36 months from its origination date
(i) All required documentation for the Receivable has been delivered to the Custodian
(j) No more than 3 Receivables have the same Obligor
Concentration Limits:
Concentration Maximum Single State 15% of Eligible Receivables Balance Single Obligor 0.5% of Eligible Receivables Balance Receivables with FICO 660-679 20% of Eligible Receivables Balance Receivables with original term >48 months 25% of Eligible Receivables Balance
What this means
Run Your Tape: Before you sign, run your actual loan tape through these criteria. Common exclusions:
| Criterion | Typical Exclusion Rate | Notes |
|---|---|---|
| FICO floor (660) | 5-15% | Depends on your credit box |
| Delinquency (60+ DPD) | 2-5% | Your DQ rate |
| Documentation issues | 1-3% | Missing signatures, incomplete files |
| Loan age (>36 months) | 0-10% | If you have seasoned inventory |
| Concentration limits | 0-5% | Depends on your geographic mix |
Illustrative pricing. See pricing disclaimer.
If your credit box extends to FICO 620 but the eligibility floor is 660, you have two choices: (1) sell the sub-660 volume separately, or (2) negotiate a lower FICO floor with a haircut to the advance rate.
Geographic Concentration: The 15% single-state cap may bind if you are concentrated in California, Texas, or Florida. A California-heavy originator might have 25% of volume from that state. Negotiate based on your actual geographic distribution, showing performance data that the concentration does not create elevated risk.
The eligibility criteria are where term sheets look most similar but create the most variance in actual economics. A term sheet with an 82.5% advance rate but strict eligibility may fund less of your portfolio than one with an 80% advance rate and flexible eligibility.
Triggers and performance covenants
Performance Triggers:
(a) Delinquency Trigger: A Performance Trigger Event shall occur if the Average Three-Month Delinquency Ratio (30+ DPD) exceeds 5.50% for any Determination Date.
(b) Loss Trigger: A Performance Trigger Event shall occur if the Average Three-Month Net Loss Ratio exceeds 6.00% for any Determination Date.
(c) Dilution Trigger: A Performance Trigger Event shall occur if the Average Three-Month Dilution Ratio exceeds 2.00% for any Determination Date.
Consequences of Performance Trigger Event:
Level 1 (Any single trigger breached): Excess Spread shall be deposited to the Spread Account until such trigger is cured. No new Advances may be requested during the trigger period.
Level 2 (Any trigger breached for two consecutive Determination Dates): Cash flows shall be applied sequentially (Administrative Agent first, then Borrower). Revolving Period shall terminate.
Level 3 (Any trigger breached for three consecutive Determination Dates or any two triggers simultaneously breached): Early Amortization Event. All outstanding Advances become due and payable within 12 months.
Cure Period: Borrower shall have a period of 45 days following notice of a Performance Trigger Event to cure such breach.
What this means
Trigger Calibration: These triggers need to be set with headroom above your normal operating performance, including seasonal peaks.
Example calibration analysis:
| Metric | Your 24-Month Average | Your Worst Month | Proposed Trigger | Headroom |
|---|---|---|---|---|
| 30+ DQ | 3.8% | 5.2% (January) | 5.5% | 0.3% |
| Net Loss | 4.2% | 5.1% | 6.0% | 0.9% |
| Dilution | 0.8% | 1.4% | 2.0% | 0.6% |
The delinquency trigger at 5.5% provides only 30 bps of headroom above your worst month. You will trip this trigger during normal seasonal variation. Request 6.5% or higher with performance data supporting the calibration.
Consequence Ladder: The three-level consequence structure is standard. What matters is the cure period (45 days here) and the distinction between reversible triggers (Level 1-2) and irreversible triggers (Level 3).
The Cure Period Fight: 45 days is reasonable. Some capital providers start at 30 days; push for 45-60. The cure period gives you time to work delinquent accounts, true up any data issues, and demonstrate the trigger breach was temporary.
Triggers calibrated to your current average performance will trip during normal business volatility. Request triggers set at historical peak plus 150-200 bps. Show your seasonal data to justify the buffer.
Financial covenants (originator-level)
Originator Financial Covenants:
(a) Minimum Tangible Net Worth: Originator shall maintain Tangible Net Worth of not less than $8,000,000 at all times.
“Tangible Net Worth” means total equity minus goodwill, intangible assets, and any unrealized gains on mark-to-market adjustments.
(b) Minimum Liquidity: Originator shall maintain Unrestricted Cash and Cash Equivalents of not less than $3,000,000 at all times.
(c) Maximum Leverage: Originator shall not permit the ratio of Total Indebtedness (excluding Non-Recourse Warehouse Indebtedness) to Tangible Net Worth to exceed 3.0 to 1.0.
Testing: Financial covenants shall be tested quarterly as of the last day of each fiscal quarter, based on Originator’s unaudited financial statements.
Cure Right: Originator shall have 30 days following notice of any financial covenant breach to cure such breach through equity contribution or other means acceptable to Administrative Agent.
What this means
TNW Covenant: The $8M minimum tangible net worth is a floor. Before signing, model your projected TNW over the facility term under base case and stress scenarios.
TNW projection example:
| Quarter | Projected TNW (Base) | Projected TNW (Stress) | Covenant | Headroom (Stress) |
|---|---|---|---|---|
| Q1 | $12.5M | $10.2M | $8.0M | 27.5% |
| Q4 | $15.0M | $9.5M | $8.0M | 18.8% |
| Q8 | $18.0M | $8.8M | $8.0M | 10.0% |
The stress case in Q8 shows headroom dropping to 10%. You want at least 30% headroom in stress scenarios. Either negotiate a lower covenant floor or plan for an equity raise before you hit tight headroom.
Liquidity Covenant: $3M minimum liquidity is straightforward if your operating burn is predictable. Model your monthly cash needs and ensure the $3M floor does not constrain operations. Some originators negotiate a formula-based liquidity covenant (3 months of operating expenses) rather than a fixed dollar amount.
Leverage Ratio: The 3.0x leverage ratio excludes warehouse debt. This is critical. If the ratio included warehouse borrowings, you would breach the covenant the moment you drew on the facility. Confirm the exclusion language explicitly.
Mark-to-Market Exclusion: The TNW definition excludes unrealized gains from mark-to-market. This protects you if asset values decline but you have not sold. Confirm this exclusion is in the definition.
Model every financial covenant forward 24 months under both base and stress cases. If your stress case shows covenant headroom falling below 20% at any point, negotiate better covenant levels or plan your capital raise before you sign.
Reporting requirements
Monthly Reports (due 10 Business Days after month-end):
- Servicer Report (loan-level performance data)
- Borrowing Base Certificate
- Collateral Report (tape in agreed format)
Quarterly Reports (due 45 days after quarter-end):
- Compliance Certificate (officer certification of covenant compliance)
- Unaudited financial statements of Originator
- Concentration limit analysis
Annual Reports (due 90 days after fiscal year-end):
- Audited financial statements of Originator (GAAP, by an independent accounting firm acceptable to Administrative Agent)
- Insurance certificates (D&O, E&O, cyber, crime)
- Licensing confirmation
Audit Rights: Administrative Agent shall have the right to conduct an operational audit of Originator and Servicer once per calendar year during normal business hours upon 10 Business Days’ prior notice. Following any Performance Trigger Event, Administrative Agent may conduct additional audits upon 5 Business Days’ notice. Each party shall bear its own audit costs for scheduled annual audits; Originator shall bear all costs for audits following a Performance Trigger Event.
What this means
Deadline Management: The 10-business-day deadline for monthly reports is tight. Set internal deadlines 5 days earlier. A missed deadline is a technical default, even if the numbers are fine.
Report Format: “Agreed format” for the collateral report should be specified in an exhibit to the documents. Push for a specific template to be attached to the term sheet. Vague format requirements create friction during the monthly reporting cycle.
Audit Frequency: Once per year is standard for scheduled audits. The provision allowing additional audits after a trigger breach is also standard, but negotiate the notice period (5 days is short; request 10) and frequency cap (no more than twice in any 12-month period, even after a trigger).
Audit Costs: Each party bearing its own costs for scheduled audits is fair. The provision making you pay for post-trigger audits is standard but can become expensive. A single operational audit can cost $25,000-$75,000. Negotiate a cap on post-trigger audit costs you bear (e.g., maximum $50,000 per audit).
Set internal reporting deadlines 5 business days before the contractual deadline. A missed internal deadline is a conversation with your team. A missed external deadline is an event of default.
Events of default
Events of Default: Any of the following shall constitute an Event of Default:
(a) Payment Default: Failure to pay any amount due within 3 Business Days of the due date.
(b) Covenant Default: Breach of any covenant that continues for 30 days after notice (or 10 days for financial covenants).
(c) Representation Breach: Any representation proves to have been materially incorrect when made.
(d) Cross-Default: Default under any other agreement involving Indebtedness in excess of $500,000.
(e) Material Adverse Effect: The occurrence of any event that has a Material Adverse Effect on the Originator, the Servicer, the Collateral, or the ability of any party to perform its obligations hereunder.
“Material Adverse Effect” means any event, condition, or change that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (i) the business, assets, operations, or financial condition of the Originator or Servicer, (ii) the value, collectability, or enforceability of the Receivables, or (iii) the ability of any Transaction Party to perform its obligations under the Transaction Documents.
(f) Change of Control: Any Change of Control occurs.
“Change of Control” means any transaction resulting in any person or group acquiring beneficial ownership of 50% or more of the voting equity interests of Originator, or the replacement of a majority of the board of directors of Originator.
(g) Servicer Termination Event: The occurrence of any Servicer Termination Event as defined in the Servicing Agreement.
Remedies: Upon the occurrence and during the continuance of an Event of Default, Administrative Agent may (i) declare all outstanding Advances immediately due and payable, (ii) terminate the Revolving Period, (iii) direct the Servicer to cease making distributions to Originator, and (iv) exercise all remedies available under the Transaction Documents and applicable law.
What this means
MAE Clause: The Material Adverse Effect definition is broad. The word “would reasonably be expected to have” allows a forward-looking MAE call. Push to limit MAE to events that “have had” a material adverse effect, not those that “would be expected to have” one. Remove any reference to “prospects” if present.
Cross-Default Threshold: The $500,000 threshold is reasonable for a $75M facility. For larger facilities or more established originators, push for a higher threshold ($1M-$2.5M) so that a minor covenant breach on a small obligation does not trigger default on your primary warehouse.
Change of Control Definition: The 50% threshold is standard. Watch for lower thresholds (35% or 40% in some term sheets) that could trigger default on a normal equity financing round. Also ensure the definition covers voting control, not just economic ownership. A preferred stock financing that gives new investors board seats but not majority voting control should not trigger default.
Cure Periods: The 30-day cure for general covenants and 10-day cure for financial covenants are standard. Push for 30 days on financial covenants if you can.
The MAE clause is where capital providers have the most discretion. Remove forward-looking language (“would be expected to have”) and any reference to “prospects.” Limit MAE to current, demonstrable adverse effects.
Other provisions
Exclusivity: For a period of 45 days following execution of this Term Sheet, Originator agrees not to solicit, negotiate, or enter into any term sheet, letter of intent, or similar arrangement with any other party for financing of a similar nature.
Governing Law: New York
Expenses: Originator shall pay (i) all reasonable fees and expenses of Administrative Agent’s counsel in connection with the negotiation, documentation, and closing of the Facility, up to a cap of $175,000, and (ii) all fees and expenses incurred in connection with any amendment, waiver, or enforcement action.
Indemnification: Originator shall indemnify Administrative Agent and its affiliates against all losses, claims, damages, and expenses arising out of or relating to the Facility or the Receivables, except to the extent caused by Administrative Agent’s gross negligence or willful misconduct.
What this means
Exclusivity Trade-Off: 45 days of exclusivity means you cannot shop the term sheet or negotiate with other capital providers during the diligence and documentation period. This is a significant commitment on a “non-binding” document.
Negotiate exclusivity only after you have substantive diligence completed and are confident you want to proceed. Counter-positions:
- Reduce to 21-30 days
- Make exclusivity contingent on capital provider meeting documentation milestones
- Include automatic termination if documentation is not circulated within 14 days
Expense Cap: The $175,000 cap on capital provider’s counsel fees is reasonable for a $75M facility. First facilities often see total legal costs (your counsel plus their counsel) of $300,000-$500,000. The cap protects you from runaway lender counsel fees, but does not include your own counsel costs.
Indemnification Scope: The indemnification is broad but standard. The “gross negligence or willful misconduct” carve-out is the floor. Do not agree to indemnify against the capital provider’s ordinary negligence.
Exclusivity at term sheet stage is a significant ask. You are committing 45 days of deal exclusivity on a non-binding document. Push for shorter periods (21-30 days) or milestone-based exclusivity that expires if the capital provider does not meet documentation deadlines.
Signature block
Non-Binding: This Term Sheet is intended to summarize the principal terms of a proposed transaction and does not constitute a binding agreement or commitment. Any binding obligations shall be set forth in definitive documentation, the execution of which shall be subject to, among other things, satisfactory completion of due diligence, internal credit approval, and negotiation and execution of definitive documentation in form and substance satisfactory to Administrative Agent and its counsel.
Expiration: This Term Sheet shall expire if not executed by both parties on or before [Date + 14 days].
Confidentiality: This Term Sheet and its contents are confidential and may not be disclosed to any third party (other than Originator’s professional advisors) without the prior written consent of Administrative Agent.
What this means
The “Non-Binding” Reality: The term sheet says it is non-binding, and legally that is true. Practically, once you sign and begin diligence, the cost of walking away is:
| Cost Category | Estimate |
|---|---|
| Legal fees already spent | $25,000-$75,000 |
| Management time | 100-200 hours |
| Data room preparation | 40-80 hours |
| Opportunity cost (3-4 months) | Significant |
| Reputational cost | Real but unquantifiable |
Illustrative pricing. See pricing disclaimer.
Sign a term sheet only when you intend to proceed. The “non-binding” label does not make walking away free.
Expiration Period: A 14-day expiration is standard. If you need more time to review, ask for 21-30 days. Do not let the expiration pressure you into signing before you have reviewed the key terms.
Confidentiality: Standard, but note that you cannot share this term sheet with other capital providers. This limits your ability to shop competitive terms. You can share the general parameters (advance rate, spread) without sharing the document itself when negotiating with others.
Comparing this to market
The terms in this sample are broadly market-standard for a consumer unsecured warehouse with a mid-tier originator. Here is how the key terms compare:
| Term | This Sample | Market Range | Notes |
|---|---|---|---|
| Advance rate | 82.5% | 75-85% | Middle of range |
| Spread | SOFR + 325 | SOFR + 275-450 | Slightly tight for new originator |
| Structuring fee | 1.00% | 0.50-1.50% | Middle of range |
| Unused fee | 0.375% | 0.25-0.50% | Reasonable |
| 30+ DQ trigger | 5.5% | 5.0-7.0% | Verify vs. your historical performance |
| TNW covenant | $8M | $5M-$20M | Calibrate to your actual TNW |
| Liquidity covenant | $3M | $2M-$10M | Standard |
| Exclusivity | 45 days | 30-60 days | Negotiate down if possible |
If you are seeing terms outside these ranges, either the capital provider has a specific reason (your performance data, their fund mandate, the credit cycle) or you should be shopping the deal more broadly.
Related topics
The Term Sheet Anatomy guide provides deeper treatment of each section covered here, including negotiation strategies and worked examples for comparing multiple term sheets.
For specific mechanics referenced in this term sheet:
- Advance rates and borrowing base covers how to calculate effective advance rates and model eligibility impact
- Triggers, tests, and performance events explains trigger calibration and consequence structures
- Covenants details financial covenant mechanics and headroom modeling
- Warehouse facilities provides the full structure guide including timeline and cost expectations